Senior High School

Fundamentals of Accountancy,

Business and Management 2

Module 10:

AIRs - LM
LU_FABM 2_Module 10
 Analyzing the E ffects of the

Identified Reconciling Items

LU_FABM 2_Module 10
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 10: Analyzing the Effects of the Identified Reconciling Items
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Development Team of the Module
Author: Geneisis P. Villanueva,T I
Author: Editor: Joselito O. DumocmatSDO La Union, Learning Resource Quality Assura
nce Team
EditorContent Reviewer:: SDO La Union, Learning Resource Quality Assurance Team
Clarita Montemayor
Content ReviewerLanguage Reviewer:: Rudyna M. Minasalvas Alex C. Somera
Language Reviewer:Illustrator: Ernesto F. Ramos, Jr., Liza Antolin P II
Illustrator: Ernesto F. Ramos Jr.
Design and Layout: Angela Pauline C. Ganuelas
Design and Layout: Hermogenes T. Diaz

Management Team:
Management Team:
Atty. Donato D. Balderas, Jr. Schools
Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D.Atty. Donato D. Balderas, Jr.
Schools Division Superintendent
Assistant Schools Division Superintendent
German E. Flora, Ph. D, CID Vivian Luz S. Pagatpatan, Ph.DChief
Virgilio C. Boado, Ph. D, Assistant Schools Division EPS in
Charge of LRMSSuperintendent Lorna O. Gaspar,
German E. Flora, EPS in Charge of ABMPh.D, CID Chief

Michael Jason D. Morales, Virgilio C. Boado, Ph.D, EPS in Charge of LRMSPDO II

Claire P. Toluyen, Lorna O. Gaspar, EPS in Charge of Librarian II ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II

Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
LU_FABM 2_Module 10
 Email Address: [email protected]

Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 10:
Analyzing the Effects of the
Identified Reconciling Items

LU_FABM 2_Module 10
 Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions, directions,
exercises, and discussions are carefully stated for you to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you step-
bystep as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in each

SLM. This will tell you if you need to proceed on completing this module or if you
need to ask your facilitator or your teacher’s assistance for a better understanding
of the lesson. At the end of each module, you need to answer the post-test to
selfcheck your learning. Answer keys are provided for each activity and test. We trust
that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are also
provided to our facilitators and parents for strategies and reminders on how they
can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on any part
of this SLM. Use a separate sheet of paper in answering the exercises and tests. And
read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in answering the
tasks in this module, do not hesitate to consult your teacher or facilitator.

Thank you.

LU_FABM 2_Module 10
 Target
Bank reconciliation is a process of making the cash balance per book
and cash balance per bank equal. The process needs two primary documents. These
are the cash book of the company and the bank statement. Cash book is a record of
all the cash receipts and disbursement on the part of the company while the bank
statement is the records of the bank pertaining to a current account showing all the
debits and credits with corresponding balances on every date after each transaction.

As a process, the accountant preparing the bank reconciliation must do a lot

of examination. The examination entails that the reconciling items must be
compared one by one from the book with the bank or vice-versa.

In your previous lessons, you are task to identify the bank accounts normally
maintained by a business (ABM_FABM12-IIc-5), identify and prepare a check
(ABM_FABM12- IIc-8), and asks to describe the nature of a bank reconciliation
statement (ABM_FABM12- IId-10). Those topics have given you the basic idea of
some of the reconciling items in a bank reconciliation statement.

This learning material will provide you with a piece-by-piece idea of the
different reconciling items that formed the bank reconciliation statements.
Specifically, it will aid you to analyze the effects of the identified reconciling items
(ABM_FABM12- IId-12).

Subtasks:

1. Identify the different reconciling items;

2. Define the different reconciling items; and
3. State the effects of the different reconciling items to the book (bank)
record.

Jumpstart

1
LU_ FABM2_Module 10
Directions: Answer briefly the questions below:

1. What is a bank statement?

2. What is an outstanding check?

3. What is a deposit in transit?

4. What is a stale check?

5. What is an NSF check?

6. Who can correct a book error?

7. Who can correct a bank error?

Discover

2
LU_ FABM2_Module 10
Activity 1. Read Me! Understand Me!

Directions: Read the bank reconciliation methods, the different reconciling items,
and their effects. Understand what you are reading.

Bank Reconciliation Methods

There are three methods of bank reconciliation. These are: a.) adjusted balance
method; b.) book to bank method, and c.) bank to book method.

The adjusted balance method shows the beginning balances of both the book
and the bank at the beginning of the month. Reconciling items are either added or
deducted to the book or bank balances to arrive at the adjusted balances at the end
of the month. The adjusted balance shows that the ending balance of the current
account is the same for both the book and the bank.

The book to bank method starts with the unadjusted balance of the book at
the beginning of the period. Series of adjustments will follow to arrive at the bank
balance at the beginning of the month.

The bank to book method begins with the unadjusted balance of the bank.
Adding or deducting the applicable reconciling items will let you arrive at the
unadjusted book balance.

Reconciling Items and Their Effects

3
LU_ FABM2_Module 10
 The following terms presented are the regular and usual reconciling items
that can be used to prepare bank reconciliation statements. These reconciling items
can be used in each of the different methods of bank reconciliation.

Reconciling
Definition / Description Effects
Items
Outstanding Checks already recorded in the Cash Cash per bank balance is
Check Disbursement Journal and issued by the overstated.
company but not yet presented to the
bank for payment. Stale check is
considered as an outstanding check but
must be replaced by a new one.

Deposit-in- Amount already recorded in the Cash Cash per bank balance is
Transit Disbursement Journal of the company understated.
as a deposit but not yet recorded in the
book of the bank.

Book Error Mistakes committed in the book by the Overstatement error

company. It can only be corrected in the increases the cash
book of the company. balance per book;
Understatement error
decreases the cash
balance per book.
No Sufficient Check issued by the company (drawer) Cash per book balance is
Fund (NSF) but returned by the bank due to understated.
Check insufficient funds. The bank charges a
specific amount for every check issued
with insufficient funds.

Bank debit Bank charges were deducted from the Cash per book balance is
memorandum account of the drawer by the drawee overstated.
(bank) but not known by the company.
Examples: Cost of printing checks, cost of
collection of accounts receivable

Bank credit Cash was added to the account by the bank Cash balance per book is
memorandum but not yet known by the company. understated.
Examples: interest earned; amount
collected as payment of an obligation.

Bank Error/s Mistakes committed by the bank. Error Overstatement error

made by the bank can only be corrected increases the cash
by the bank. balance.
Understatement error
decreases the cash
balance

4
LU_ FABM2_Module 10
 Explore

Enrichment Activity: Read Me! Answer Me!

Directions: Analyze each problem independently then answer the questions that
follow. Write your answer in the space provided before the number. Use CAPITAL
LETTER ONLY.

A. The cash disbursement journal of ABC Corporation reflected the following

collections for the month of October 2019:

Check Date Check No. Payee Amount

10/12/2019 14171 Alpha 4,000
10/13/2019 14172 Bravo 2,000
10/19/2019 14173 Charlie 8,900
10/25/2019 14174 Delta 7,800
10/30/2019 14175 Echo 3,200

The bank statement for October 2019 revealed following checks presented to the bank
for payment:

Date Amount
10/13/2019 4,000
10/14/2019 2,000
10/28/2019 7,800

____1. What are the outstanding checks?

A. Check numbered 14172 and 14173

B. Check numbered 14173 and 14175
C. Check numbered 14171 and 14175
D. Check numbered 14174 and 14175

_____2. What is the total calculated amount of the outstanding checks?

A. 7,200 B. 10,900 C. 11,000 D. 12,100

5
LU_ FABM2_Module 10
___3. What possible findings can you give if given the chance to investigate the
effects of the outstanding checks to cash balances of book and bank as of
October 31, 2019?
A. Bank: no effect: Book: overstated
B. Bank: overstated: Book: no effect
C. Book: overstated; Bank: understated
D. Book: understated; Bank: overstated

6
LU_ FABM2_Module 10
 Deepen

The cash receipts journal of XYZ Merchandising reflected the following collections for
the month of April 2019:
Official Receipt Date Official Receipt No. Custome Amount
r
5/2/2019 4171 Carl 4,000
5/8/2019 4172 Vincent 2,000
5/9/2019 4173 Ryan 8,900
5/25/2019 4174 Fatima 7,800
5/30/2019 4175 Cherry 3,200

It is the policy of the company to deposit collection within the following day from the
date of collection.

The bank statement for April 2019 revealed the following deposits made:

Deposit Date Amount

5/3/2019 4,000
5/9/2019 2,000
5/10/2019 8,900
5/26/2019 7,800

Required:

________1. What is the calculated amount of deposit in transit?

A. 3,000 B. 3,100 C. 3,200 D. 3,300

________2. What can be detected as a possible effect of the deposit in transit

to the book balance and bank balance as of the end of April 2019?

A. Bank balance: no effect; book balance; overstated

B. Book balance: no effect; bank balance: overstated
C. Bank balance: overstated; book balance: understated
D. Book balance: understated; bank balance: understated.

7
LU_ FABM2_Module 10
 Gauge

Directions: Answer the questions below by writing the letter of the best answer on
the space provided before the number. Use CAPITAL LETTERS only.
1. What is the monthly statement containing the beginning and ending
balances, debits, and credits with corresponding dates given by the bank to
the owner of the current account?
A. Bank statement B. Credit memorandum
C. Bank reconciliation D. Outstanding check

2. What is the amount already recorded in the Cash Disbursement Journal of the
depositor but too late to be recorded in the book of the bank?

A. Stale check B. Debit memorandum

C. Deposit in transit D. Credit memorandum

3. What check was written, forwarded to the payee but not yet presented to the
bank for payment?

A. NSF check B. Bouncing check C. Stale check

D. Outstanding check

4. What check was issued by the drawer but was returned by the drawee for lack of
funds?

A. NSF check B. Local check C. Stale check D.

Outstanding check

5. What are mistakes committed by the drawer?

A. Bank errors B. Book errors
C. NSF checks D. Deposit in transit

6. What are mistakes committed by the drawee?

A. Bank errors B. NSF checks

C. Book errors D. Deposit in transit

7. Which is an example of a debit memorandum?

A. Interest earned

8
LU_ FABM2_Module 10
 B. Bank service charges

C. Cash collected by the

company without the knowledge of the bank
D. Cash collected by the bank without knowledge of the company

______8. Which is an example of a credit memorandum?

A. Book error B. Outstanding check

C. Interest earned D. Bank service charge

______9. Who can correct an error committed by the bookkeeper of the

drawer?
A. The bank can correct the error.
B. The company can correct the error.
C. The auditor of the bank can correct the error.
D. Either the company or the bank can correct the error.

_____10. Who can correct an error committed by the bookkeeper of the

bank?
A. The bank can correct the error.
B. The company can correct the error.
C. The auditor of the book can correct the error.
D. Either the company or the bank can correct the error.

______11. Which of the statements below is not true about the understatement of
cash balance per book?

A. Check issued is correctly recorded in its amount.

B. Check amount issued is recorded at a lower amount.
C. Check amount issued is recorded at a higher amount.
D. Check issued is correctly recorded in its date and check number.

______12. How do you calculate the amount of outstanding checks?

A. Total amount of checks issued a less stale check

B. Total amount of checks issued less No Sufficient Funds
Check
C. Total amount of checks issued less amount of checks encashed
D. Total amount of check issued is the amount of outstanding check
______13. How do you distinguish an outstanding check from other checks?

9
LU_ FABM2_Module 10
 A. Check not yet presented for payment.
B. Check presented for payment to the bank.
C. Check issued but not yet encash after 9 months.
D. Check presented for payment to the bank but marked NSF.

______14. How do you calculate an overstatement or understatement of cash

recorded?

A. Recorded amount.
B. Actual amount recorded.
C. Actual amount less than the recorded amount.
D. Amount recorded less than the actual amount.

10
LU_ FABM2_Module 10
 15. What is the comparison between a bank error and a book error?
A. Book errors can be corrected by either the bank or the book.
B. Bank error can be corrected by either the bank or the book. C. Bank
error can be corrected in the book; book error can be corrected by
the bank.
D. Book error can be corrected in the book; bank error can be corrected
by the bank.

Congratulations! You have reached this point. To measure how much you have learned
from the topic, answer the posttest prepared for you. After which compare your answers
with your answers on the pretest.

11
LU_ FABM2_Module 10
 Answer Key

References
Printed Materials:

12
LU_ FABM2_Module 10
Commission on Higher Education. (2016). Teaching Guide for Senior High School in
Fundamentals of Accountancy, Business, and Management (pp. 137 – 147).
Diliman, Quezon City.
LINKS:

What is bank reconciliation and its importance? Retrieved July 23,

2020, https://accounting-simplified.com/financial/bankreconciliation/

13
LU_ FABM2_Module 10
 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
[email protected]
[email protected]

14
LU_ FABM2_Module 10